Milestone Gears Private Ltd., Parwanoo V. DCIT/ACIT/ITO, NFAC, Delhi, Parwanoo

ITA 434/CHANDI/2021

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Milestone Gears Private Limited appealed against the order of the Additional Commissioner of Income Tax, which was based on the TPO's adjustment of Rs. 5,63,07,943 under section 92CA(3) of the Income Tax Act, 1961. This adjustment was related to the profit declared by Unit V of the company, which was engaged in machining jobs for other units. The TPO applied the profit split method due to the absence of comparable uncontrolled prices for benchmarking these inter-unit transactions. The DRP upheld this adjustment, leading to the company's appeal. The Tribunal's decision to delete the addition was based on the fact that the assessee did not claim any deduction under section 80IC for the year in question, and thus, the adjustment should not have led to an increase in the assessed income.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135499 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 19-06-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 27-12-2021
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard
• Section: 154; 143(3); 144C; 80IC; 80IC; 92CA

Judgement Text

आयकर अपीलीय अिधकरण,च᭛डीगढ़ ᭠यायपीठ “बी” , च᭛डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH ᮰ी आकाश दीप जैन, उपा᭟यᭃ एवं ᮰ी िवᮓम ᳲसह यादव, लेखा सद᭭य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ ITA NO. 434/Chd/2021 िनधाᭅरण वषᭅ / Assessment Year : 2017-18 Milestone Gears Private Limited 58, Industrial Area, Sector-1, Parwanoo- Himachal Pradesh- 173220 बनाम The Addl. CIT Range-1, Chandigarh and Addl. / Joint/Deputy/Asst. CIT/ITO National e-Assessment Centre, Delhi ᭭थायी लेखा सं./PAN NO: AAACM9431E अपीलाथᱮ/Appellant ᮧ᭜यथᱮ/Respondent िनधाᭅᳯरती कᳱ ओर से/Assessee by : Shri Anil Khanna, CA राज᭭व कᳱ ओर से/ Revenue by : Shri Sandip Dahiya, CIT , DR सुनवाई कᳱ तारीख/Date of Hearing : 20/06/2023 उदघोषणा कᳱ तारीख/Date of Pronouncement : 05/09/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld. AO, NFAC, Delhi passed under section 143(3) r.w.s 144C(13) and 144B of the Act, dt. 28/10/2021 pertaining to assessment year 2017-18. 2. In the present appeal, the assessee has raised the following grounds of appeal: “1. As per the facts and circumstances of the case and as per the provisions of law, the Dispute Resolution Panel has erred in its directions, and the assessing officer/transfer pricing officer has erred in rejecting the benchmarking analysis of the assessee and applying the profit split method as the most appropriate method. The benchmarking done by the assessee being most appropriate under the fact be accepted. 2. As per the facts and circumstance of the case and as per the provisions of law, the Dispute Resolution Panel has erred in its directions, and the assessing officer/ transfer pricing officer has erred in making an adjustment of Rs. 5,63,07,963/- on account of excess profit claimed in unit V under section 80IC, the same being harsh, unjust and illogical be deleted. 3. As per facts and circumstances and as per provisions of law, the assessing officer has erred considering the addition as deemed income under Section 115BBE and calculating tax on the same amounting to Rs. 36,91,008. The provisions not being applicable the same be deleted. 2 4. The assessee craves permission to add or amend the above grounds at the time of hearing.” 3. At the outset, it is noted that there is a delay of one day in filing the appeal as pointed out by the Registry. After taking into consideration the condonation application as well as affidavit of the Managing Director of the assessee company, the delay is hereby condoned and the appeal of the assessee is admitted for adjudication. Firstly, the Ground No. 3 was not pressed by the Ld AR on behalf of the assessee during the course of hearing, hence the same is dismissed as not pressed. 4. Regarding Ground No. 2, the Ld. AR submitted that during the year under consideration, the assessee company has not claimed any deduction under section 80IC of the Act due to losses in the respective units though the said units were eligible for deduction under section 80IC of the Act. It was accordingly submitted that the transfer pricing adjustment so made by the TPO and upheld by the DRP therefore cannot be made a basis for making the addition to the returned income of the assessee as there was no claim under section 80IC at first place. 4.1 In this regard, it was submitted that the assessee company is a private limited company engaged in the business of manufacturing and dealing in automotive parts like gears, axles and shafts etc. having its office and works at Parwanoo, Kalka, Barotiwala and Rajgarh. For the year under consideration, the assessee company filed its return of income declaring total income at Rs. 4,62,20,060/- after claiming deduction under section Chapter VI-A amounting to Rs. 1,83,750/- only on account of donation and not in respect of deduction under section 80IC of the Act. 4.2 It was submitted that the case of the assessee was referred to the TPO as the case was selected for scrutiny and one of the reason being the TP Risk Parameter. Thereafter the TPO passed the order under section 92CA(3) of the 3 Act on 25/01/2021 wherein the relevant findings are contained at para 16 of his order which read as under: “14. The assessee has finally claimed that it has not claimed deduction u/s 80-IC for any unit for assessment year 2017-18. However, since Unit V is eligible for deduction u/s 80-IC as per the claim of the assessee, its inter-unit transactions have to be benchmarked as per section 92CA read with section 80-IA(8)/ 80-IC of the I. T. Act, 1961. Further, it is noticed that the assessee has declared profit of Rs. 8,45,95,489/- for Unit V which has been adjusted by brought forwarded earlier years' loss of Rs. 10,65,85,348/- and carried forward loss of Rs. 2,19,89,859/- as per the information filed. Any downward adjustment made in the present order u/s 92CA(3)/ 80-IA(8)/ 80-IC would lead to reduction in profit for the current year and increase in carried forward loss for the purpose of deduction u/s 80-IC. So, necessary benchmarking, as mandated by section 92CA has to be done in the case whether the assessee has claimed deduction u/s 80-IC for the present year or not. 16. Thus, an adjustment of Rs. 5,63,07,9438/- is hereby made u/s 92CA(3)/80IA(10)/80IC of the I.T. Act, 1961 in respect of profit of Unit V for the purpose of claim of deduction u/s 80-IC of the Act. i.e., the profit of the assessee for the purpose of deduction u/s 88-IC of the I.T. Act, 1961 shall be reduced by Rs. 5,63,07,943/- and deduction u/s 80-IC is to be allowed on the reduce amount subject to compliance of necessary conditions. Further, if the assessee is allowed carried forward of loss by Unit V by the assessing officer, the said loss should be increased by Rs. 5,63,07,943/- for the purpose of deduction u/s 80-IC for this Unit. The assessing officer may examined the issue of initiation of penalty u/s 270 A of the Act. The assessee was allowed reasonable opportunity of being heard which included personal hearing.” 4.3 It was submitted that the assessee thereafter carried the matter in appeal before the DRP against the draft assessment order passed under section 143(3) r.w.s 144C of the Act proposing the adjustment so done by the TPO and the DRP upheld the order of the TPO and the relevant findings are contained in para (vii) page 6 which read as under: "vii) The DRP has considered the matter. The assessee has failed to benchmark the inter-unit transactions, Unit V which is engaged in machining job for Unit-Il for which no comparable are available. The assessee. has purely on estimate basis considered 35% to 38% of the product price as the appropriate value for the work done by Unit-V. There is no basis what so ever for this estimate. The assessee has failed to provide any uncontrolled comparable case. It was noted by the Ld. TPO in the case of assessee that the assessee has not done any benchmarking for Unit V The profits of the assessee at enterprise level are available which are not affected by any inter-company transactions. The details of inter unit transactions 4 are on record. Considering these facts the Ld. TPO applied profit split method by dividing profits in the ratio of contribution made by each unit in the form of cost incurred by them. On the basis of information available, profit split method applied by the Ld. TPO is the appropriate method. The assessee has argued that no deduction u/s 80IC was claimed and no further adjustment is required in the computation of total income. For claim of deduction u/s 80-IC of the Income Tax Act, the assessee is required to fulfill certain conditions. Claim or no claim of deduction u/s 80-IC is irrelevant for benchmarking of inter-unit transactions. The DRP upholds the benchmarking done by the ld TPO and the objections of the assessee are rejected.” In light of the detailed discussion made above, an adjustment of Rs. 5,63,07.943/- is hereby made u/s 92CA(3) of the I. T. Act, 1961 for profit declared by Unit V. 4.4 It was submitted that following the directions of the DRP, the AO passed the final assessment order under section 143(3) wherein an adjustment of Rs 5,63,07,943/- was made u/s 92CA(3) for profit declared by Unit V and an addition of Rs. 5,63,07,943/- was made in the hands of the assessee and as against the returned income of Rs 4,62,20,060/-, the assessed income was determined at Rs 10,25,28,000/-. 4.5 It was submitted that the assessee has not claimed any deduction under section 80IC of the Act during the year under consideration and our reference was drawn to the returned income as well as computation of income which is placed at pages 67-70 of the paper book. It was submitted that only an amount of Rs. 1,83,750/- was claimed on account of certain donation made by the assessee, however, it is crystal clear on the face of the return of income that there is no deduction which has been claimed under section 80IC of the Act. It was accordingly submitted that even where the adjustment so proposed by the TPO is upheld by the DRP which the assessee wishes to contest separately, in absence of any deduction claimed u/s 80IC, AO has wrongly added the amount of Rs. 5,63,07,943/- to the returned income of the assessee. 4.6 It was submitted that subsequently, the assessee also moved a rectification application before the AO who has disposed off the rectification 5 application vide order dt. 06/06/2023 wherein he has refused to carry out the necessary rectification and the relevant findings of the AO reads as under: “6. The assessee vide his rectification application dated 19.12.2022 has requested that the addition of Rs.5,63,07,943/- has wrongly been made as the assessee has not claimed any deduction u/s 80IC of the Act and the same may be deleted. In this context, it is stated that the assessee company has also claimed before the Ld. TPO that it has not claimed any deduction u/s 80IC of the Act for any unit for the assessment year 2017-18. The Ld. TPO has disposed off the objection of the assessee company with the following observations in para 14 of his order dated 25.01.2021 which is reproduced as under:- "The assessee has finally claimed that it has not claimed deduction u/s 80IC for any unit for assessment year 2017-18. However, since Unit V is eligible for deduction u/s 80IC as per claim of the assessee, its inter-unit transactions have to be benchmarked as per section 92CA read with section 80-IA(8)/80IC of the Income Tax Act, 1961. Further, it is noticed that the assessee has declared profit of Rs. 8,45,95,489/- for Unit V which has been adjusted by brought forwarded earlier years' loss of Rs. 10,65,85,348/- and carried forward loss of Rs.2,19,89,859/- as per the information filed. Any downward adjustment made in the present order u/s 92CA(3)/80-lA(8)/80IC would lead to reduction in profit for the current year and increase in earned forward of loss for the purpose of deduction u/s 80IC. So, the necessary benchmarking, as mandated by section 92CA has to be done in the case whether the assessee has claimed deduction u/s 8IC for the present year or not." 7. The assessee has also filed appeal before the DRP-1, New Delhi regarding proposed addition of Rs. 5,63,07,963/- on the recommendation of the Ld. TPO. As reproduced in para 5 of this order, the claim of the assessee has been rejected by the DRP. The Ld. DRP-1, New Delhi vide order dated 22.09.2021 has upheld the proposed addition of Rs. 5,63,07,963/- by the A.O. on the recommendation of the Ld. TPO and has clarified that the claim or not claim of the deduction u/s 80IC of the Act is irrelevant for benchmarking of inter-unit transactions. 8. From the above, it is concluded that the Ld. TPO has recommended for an addition of Rs. 5,63,07,943/- as the Unit V of the assessee company had excessive profits vis-a-vis other units snd the assessee had not done any benchmarking for transactions of this unit. The Ld. TPO has also clarified that the necessary benchmarking was done, as mandated by section 92CA in this case whether the assessee has claimed deduction u/s 8IC for the present year or not. Also, The Ld. DRP-1, New Delhi vide his order dated 22.09.2021 has upheld the proposed addition of Rs. 5,63,07,963/- and has clarified that the claim or not claim of the deduction u/s 80IC of the Act is irrelevant for benchmarking of inter-unit transactions. 9. In view of the above, it is clarified that there is not any mistake apparent from the records which needs to be rectified and does not comes under the purview of section 154 of the Income Tax Act, 1961. Therefore, rectification application becomes in-fructuous and the same is disposed off as above without any action.” 6 4.7 It was accordingly submitted that where there is no such claim of deduction made by the assessee under section 80IC of the Act, there is no basis for making addition on account of the adjustment as proposed by the TPO and confirmed by the DRP. 5. The Ld. CIT/DR was heard who has relied on the order of the lower authorities. It was submitted that whether assessee has made any claim under section 80IC or not, the benchmark analysis has to be done by the assessee in respect of inter-unit transactions and the same needs to be determined whether the same was at arms length or not. 6. We have heard the rival contentions and perused the material available on record. The TPO has returned a finding that Unit V is eligible for deduction u/s 80IC as per claim of the assessee and its inter-unit transactions have to be benchmarked as per section 92CA read with section 80-IA(8)/80IC of the Income Tax Act, 1961 and there cannot be any dispute in this regard. Further, the TPO has noticed that the assessee has declared profit of Rs. 8,45,95,489/- for Unit V which has been adjusted by brought forwarded earlier years' losses of Rs. 10,65,85,348/- and carried forward loss of Rs.2,19,89,859/- as per the information filed and any downward adjustment made in the present order u/s 92CA(3)/80- lA(8)/80IC would lead to reduction in profit for the current year and increase in carried forward of loss for the purpose of deduction u/s 80IC. The TPO thereafter has proposed an adjustment of Rs 5,63,07,943/- and which has been upheld by the DRP. The effect of such an adjustment would therefore be reduction in profits of the Unit V for the current year by Rs 5,63,07,943/- and increase in its carried forward losses by equivalent amount. Further, given that there are past accumulated losses and no profits available for the year after such setoff, there is no claim which has been made by the assessee u/s 80IC in the return of income prior to such adjustment. Even post such adjustment, no profits will become available which has been considered by the AO for allowing 7 deduction u/s 80IC of the Act. Thus, the adjustment so made by the TPO and upheld by the DRP cannot lead to enhancement by way of addition to the returned income as has been done by the AO while passing the final assessment order. The adjustment will lead to increase in carry forward of losses to the subsequent years. In light of aforesaid discussions, we agree with the contention advanced by the ld AR in this regard and the addition of Rs 5,63,07,943/- is hereby directed to be deleted. 7. In view of the aforesaid discussions, other grounds of appeal and relates contention challenging the benchmarking analysis and the adjustment so made by the TPO and upheld by the DRP have become academic in nature and the same are left open and not adjudicated upon. 8. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 05/09/2023. Sd/- Sd/- आकाश दीप जैन िवŢम िसंह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा᭟यᭃ / VICE PRESIDENT लेखा सद᭭य/ ACCOUNTANT MEMBER AG Date: 05/09/2023 आदेश कᳱ ᮧितिलिप अᮕेिषत/ Copy of the order forwarded to : 1. अपीलाथᱮ/ The Appellant 2. ᮧ᭜यथᱮ/ The Respondent 3. आयकर आयुᲦ/ CIT 4. िवभागीय ᮧितिनिध, आयकर अपीलीय आिधकरण, च᭛डीगढ़/ DR, ITAT, CHANDIGARH 5. गाडᭅ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar